An Ad Model That Works

Banner ads were going to fund the entire Internet. Then they unceremoniously fell from favor, and for good reason. But not all advertising models are created equal

Company:Healthcommunities.com, in Northampton, Mass. What it does: Hosts content-rich Web sites for physicians, sponsored by pharmaceutical and medical-device companies Number of employees: 60 Conventional wisdom: As deep-pocketed E-health sites like DrKoop.com gasp for air, small, privately held health sites are likely to drop dead in their tracks. Unconventional wisdom: An imaginative, sound advertising model has made the company consistently profitable. Revenue growth: From $2 million in 1999 to $5 million in 2000; $7 million projected for 2001 Profit profile: Profitable since day one Capital: $60,000 in personal funds

Last year's dot-com epidemic left one group of online businesses feeling particularly queasy: the E-health companies. Despite having former surgeon general C. Everett Koop at its helm, DrKoop.com saw its stock price, which had peaked at $45 in July 1999, trading below $1 earlier this year, putting the company in danger of being booted off the Nasdaq. Like many other content-based E-health sites, DrKoop.com relied on banner ads, a model that proved to be not only unworkable but unprofitable.

So how is it that one health-information company has succeeded online by relying on corporate sponsorships to make money? Dr. Stanley J. Swierzewski III, CEO of Healthcommunities.com, simply prescribed himself a new model.

In 1996, Swierzewski, a practicing urologist, paid a Web-development shop to create a site that would promote his practice. He reasoned that other urologists would benefit from a similar service. Swierzewski was keen on the idea of offering the service to doctors free of charge, but he had his doubts about whether banner ads could support such a business. So he drew up a business plan in which pharmaceutical and medical-device companies would sponsor Web sites for physicians. The sponsoring companies could then use the sites to market themselves and their products to doctors within the Healthcommunities network.

How does Swierzewski's idea differ from the direct-to-consumer banner-ad model? For one thing, it employs a different format. There are no banner ads on a Healthcommunities site; the corporate sponsors are mentioned only at the bottom of each page. But that exposure is precious for many businesses that covet face time with physicians. According to Pharmaceutical Research and Manufacturers of America (PhRMA), in 1999 a whopping $14 billion went into marketing drugs, and the majority of that money went to direct-to-physician campaigns, says Jeff Trewhitt, a PhRMA spokesperson. In addition to dropping off logo-splashed mugs and free product samples, pharmaceutical reps spend time explaining the therapeutic properties of various drugs to doctors, Trewhitt says. The thinking goes that if the doctors know about the drugs and have a chance to give their patients free samples, they are more likely to prescribe the medications.

So far, Swierzewski's model seems to be working. He says that last year Healthcommunities generated $5 million in revenues, all of which came from medical-product sponsor companies. Because the underwriters pay for all the sites before Healthcommunities even builds them, the company doesn't have to worry about attracting users and then selling those eyeballs to advertisers. "Our motto is 'We generate the income before we generate the expense," says Swierzewski, referring to his company's unusual status as having been profitable on the Web since day one. That sets Healthcommunities apart from E-health giants like WebMD Corp., which posted a 1999 loss of $288 million on revenues of $102 million.

One customer that likes Healthcommunities' model is Boston Scientific, a $2.8-billion medical-device company based in Natick, Mass., that markets, among other things, surgical equipment to urologists. By sponsoring Healthcommunities sites for urologists, "we don't just go in and talk about our products; we can also consult with them on a practice-building basis," says Beth Bronstein, director of communication in Boston Scientific's microvasive division. "We can ask them, 'How are you marketing your practice? How is your communication with your patients?"

Another key to Healthcommunities' success, Swierzewski says, was his decision to pitch his first batch of free sites specifically to urologists. Focusing on that relatively small market -- about 8,000 physicians nationally -- allowed him and his staff to further develop the company's business model before branching out into other specialties. It also helped him begin to corner the market one specialty at a time. "We got the majority of urologists signed on within three months," Swierzewski says. He is now taking the company's concept to pulmonologists and will continue to add to the company's canon, specialty by specialty.

Swierzewski had doubts about whether banner ads could support his business. So he drew up a business plan that would.

Unlike sites that post information straight from drug and device manufacturers, Healthcommunities gets its content from physicians, who contract with the company. The client doctors then work with Healthcommunities staff members to customize their own personal Web pages, offering such things as physicians' biographies, office hours, and information about the procedures they use to treat their patients. Some sites provide medical forms that patients can fill out at home instead of in the waiting room. Site users can't purchase anything, and they don't see banners streaming across the page.

According to Dr. Roscoe Nelson, a urologist in Scottsdale, Ariz., who signed on with Healthcommunities to produce a site for his practice, the fact that the actual commerce on his site is transparent to the user is significant. "The problem that I see with the Internet in medicine is that a large percentage of the sites are selling things," says Nelson. He feels that for many patients such product pitches detract from the credibility of the information that's being offered. Patients who visit his site and view the doctor-generated content before arriving at his office "come in with good questions," he says. And because his patients learn a lot of basic information on the site, Nelson can spend more time talking with them about specific issues. "I can personalize the time I spend with them in the office," he says.

Although Nelson feels comfortable that his site isn't acting as an electronic pitchman to needy patients, he does acknowledge the potential ethical conflict involved in being sponsored by a pharmaceutical company. But he doesn't believe that he's been unduly influenced by that connection. "They made me a no-strings-attached offer," he says of his site's sponsors. "I don't think there's been any effect on my prescribing or treating habits based on the time that I've spent with sponsors. I prescribe the drugs that are medically indicated."

Swierzewski is betting that both the physicians and the companies that are marketing to them will continue to see the value in his offering. And unlike the founders of some of the big-name health dot-coms, Swierzewski is growing his company organically. He started it with a personal investment of $60,000 and has relied solely on its revenues for growth -- much to the chagrin of the capital community. "They told me that I wasn't spending enough," he says. Despite his lack of outside funding, Swierzewski expects to grow the company from 60 employees to 100 by the end of this month.

All that growth, and Swierzewski still has time to remove kidney stones? Despite his foray onto the Web, the doc says he's determined to maintain an active urology practice. "There may come a time when I have to choose," he says. But for now he spends his days logging time both on the computer and in the operating room.

With no fanfare and little venture money, the companies profiled here are delivering real stuff to paying customers and making a buck in the process. There may not be any "new rules," but there are rules, and we suspect every one of them will look familiar.